States aren’t finding tax reform easy, either

Republicans across the country are sending party leaders in Washington a sobering message: Tax reform is much harder than you think.

Kansas kicked off a tax reform push last year, and the GOP governors in Louisiana, North Carolina and Nebraska quickly followed. They each began with ambitious agendas that included the wholesale scrapping of their state income tax, but they are either coming up empty or implementing bills loved by no one.

Text Size

-

+

reset

Their struggle is the result of the same forces that threaten to topple any reform effort that might gain traction on Capitol Hill: powerful lobbying, bickering inside Republican circles and resistance from a public unwilling to live without certain tax benefits.

And if killing the income tax can’t happen in a place like Nebraska — where tax laws are relatively simple and the GOP is dominant — it raises questions about how Republicans in Washington will navigate intense partisanship and the complexities of the federal Tax Code to muscle through a tax reform that dramatically slashes rates.

“It is difficult at both [the federal and state] levels,” Nebraska Gov. Dave Heineman told POLITICO. “It is time for them to make the tough decisions. They’re not going to get there overnight, but they need to sit around the table just as we do at the state level.”

Kansas is the only state where the GOP governor managed to get a tax reform deal across the finish line recently, but almost no one there is celebrating. The battle pitted Republicans against other Republicans and resulted in a bill that some economists say will carry a price tag of almost $230 million in 2013 alone.

“Last year was a tortured process,” Terry Bruce, the Republican Senate majority leader in Kansas, told POLITICO. “We originally had a lot of pay-fors in the bill getting rid of deductions and tax credits and lowering the income tax bracket. It only cost about $90 million when we started. By the time they got done saving breaks and rewriting, [the bill] had a pretty staggering price tag on it.”

Louisiana Gov. Bobby Jindal, widely seen as a 2016 presidential contender, hardly had time to get his tax plan off the ground before a GOP revolt forced him to shelve it. He’s now facing criticism that the proposal was thrown together too quickly.

“In our state, the groundwork really wasn’t done to do tax reform,” said Rep. Charles Boustany, a Louisiana Republican who sits on the Ways and Means Committee in Washington. “I think that’s why they have problems with it in Louisiana.”

In Nebraska, Heineman said he started the year thinking he could easily move legislation tossing the income tax. He’s very popular and enjoys a GOP majority in the Legislature. But his prospects are dimming now that businesses and farmers are up in arms over the prospect of losing beloved benefits and efforts in other states are faltering.

He is almost back to square one, still explaining to constituents in basic terms why tax reform should be a priority.

“I’ve tried to explain that this is about simplicity and fairness with the Tax Code,” Heineman said. “This isn’t something where I’m saying let’s just go lower the rates and trust that we’re going to get more money in to pay for it.”

The unexpected struggles the tax reform plans have encountered highlight that while repealing all state income taxes is a popular idea on its face, it’s hard to make up for the lost revenue without riling up powerful constituencies.